Spanish banks suffer from Madoff scandal

BBVA and Santander both say they'll take provisions over related losses

MADRID (MarketWatch) -- Spanish banking giants BBVA SA and Banco Santander SA both said Wednesday that they would need to take provisions to cope with losses related to the Bernard Madoff scandal.

BBVA
BBV, +9.19%
(011321183) reported a 62% fall in fourth quarter net income, much worse than expected, in part due to the Madoff scandal. The company said it would take a 302 million euro ($401 million) provision for the fourth quarter of 2008 over its Madoff exposure.

Meanwhile, Santander
STD, +6.41%
said its 2008 net profit slipped 2% to 8.88 billion euros after taking a provision of 500 million euros, or 350 million euros after tax, on a settlement offer to customers who lost money in the Madoff fraud. Announcing the figures earlier than expected, Santander pointed out that the bottom line was 9.4% higher than the 2007 result if capital gains were excluded.

A survey of analysts polled by FactSet was projecting net income of 9.27 billion euros for this year. The company said that all extraordinary gains in the year were offset by write-offs and reinforcement of its balance sheet.

Santander on Tuesday moved to head off lawsuits related to Madoff by offering a settlement worth 1.38 billion euros to private clients who lost money through investments in the Optimal Strategic U.S. Equity fund. It's the first bank to offer clients such a deal.

Santander also reportedly said it would close seven funds run by its Optimal Investment Services after the Madoff scandal triggered a surge in withdrawal requests. The settlement came a day after U.S. clients of Santander filed a lawsuit against the bank in Florida.

Carlos, Berastain Gonzalez, research analyst with Deutsche Bank who has a buy rating on Santander, said in a research note that the bank probably won't see much effect on its core tier 1 capital -- the ratio of reserves to risk-weighted assets. "All in all, although not great news, the impact is not huge and more importantly, prevents having to face larger (and unknown) compensations derived from different lawsuits and more importantly the potential loss of business."

Within commercial global banks, clients of Santander had the most exposure to the Madoff scandal, having lost more than 2.3 billion euros by investing with Madoff via its hedge fund asset management unit, Optimal.

As well as announcing its profit early, Santander said it will pay a final dividend of 0.257 euros per share in cash, calming any fears that the payout could come under pressure.

Shares of Santander were last up 9.9% in Madrid, benefiting in part from a boost given to global financial shares on Wednesday on back of a report the Obama administration is nearing a plan to buy illiquid or bad assets from banking firms

BBVA logs losses

Meanwhile, news was not so great over at BBVA. Its fourth quarter earnings of 519 million fell well below the average net profit of 912 million euros expected by 10 analysts polled by Dow Jones Newswires.

In 2008, net income overall was 5 billion euros, down 18% from 6.126 billion a year ago. Earnings per share fell 2.8% on an annual basis in 2008 to 1.47 euros from 1.5 euros.

In addition to provisions for Madoff exposure, the bank also took gross charges of 470 million euros and 390 million euros in the second and fourth quarters for early retirements. Bad loans were also a problem.

The company said loan-loss provisions increased 47% during the year to 2.79 billion euros from 1.9 billion euros a year ago, owing to the rise of non-performing assets and because the bank "continues to act with maximum prudence in a very complex economic environment."

It said, however, that it still has no need for asset provisions or write-offs related to the crisis in financial markets.

The bank said its earnings were a "considerable achievement" in a year when its competitors have recorded significant falls in revenue and profits. At the presentation of results in Madrid, though, the company said it would cut 10% of its U.S. staff, according to Dow Jones Newswires.

BBVA said its core capital base was 17.5 billion euros -- 6.2% of risk-weighted assets, against 5.8% achieved at the end of 2007. Its Tier 1 capital was 7.9% at the end of 2008, versus 7.3% a year ago.

Shares
BBV, +9.19%
(011321183) were up just over 5% in Madrid. Analysts said they were pleased by the fact the group announced a prudent dividend policy for 2009 with a payout of 30% in cash, and will pay a share rather than cash dividend in the fourth quarter.

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